Finances are a scary and sensitive subject for most millennials. If you are one of the many people living paycheck to paycheck, the last thing you want to hear is someone telling how horrible your financial choices or habits are, or how you need to “save” your way to financial independence. Especially when you barely have enough disposable income to cover your debts, bills, and occasional wants. Life is hard, and making money is even harder. Most people are underpaid and overworked.
Amidst the coronavirus, about 30 million + people in the US have filed for unemployment. Many industries have been hit hard by the economic stagnation that the virus has caused. It has disrupted the labor market in ways we can’t imagine. It’s important to note that, even before people were getting laid off in droves, millennials were, and still are making significantly less than previous generations, with wages that don’t match current trends of inflation and cost of living through the roof. This pandemic , as tragic as it may be, has rightly exposed the thin thread we are all hanging on financially. Hopefully more progressive fiscal policies will be put in place to ensure financial stability for millennials in the future. And we won’t have to rely on lousy stimulus checks to keep us afloat.
Don’t let the boomers call you lazy because you can’t save 50% of your income, buy a house with a picket fence and raise 2.5 kids by 25. Starbucks isn’t the cause of your financial woes. Although their coffee IS overpriced. The answer to a lot of financial trouble, will be to make more money, most of the time.
That being said, our lives are crazy, and we have many social distractions that can cause ‘disorganization” with our personal finances. People often have a “methodical madness” to their spending, and may feel like they have an accurate mental note or picture of their financial habits. Not quite. You don’t realize how much money is coming in and out on a monthly, weekly, or even on a daily basis, until you carefully assess and track your spending. Budgeting will not automatically make you richer, but it may help identify, and if necessary, correct some toxic financial habits that you may unconsciously have. Trust me, I gasped the first time I realized what my cash flow really looked like.
Without a concept, or accurate picture of our financial habits, we tend to assume that we are in better, and sometimes worse, financial positions than we’re actually in. We love feigning blissful ignorance of how much we swipe our cards monthly. Do you want to take real control of your finances? Budgeting is the absolute first step to financial literacy.
These are tips on how to start, and get acclimated to a budget;
- Create your core spending categories.
Before you craft your actual budget, you need to identify what your main spending categories are. Some common ones are, Rent, Transportation, Utilities (Gas, Water, Electric), Internet, Food, Shopping, Personal Care, Charity/Tithe, etc. Make sure to identify which ones you will need for your budget.
- Track the previous month’s spending.
Before you start budgeting your next paycheck, try to get a clearer picture of your finances in the previous months. Go through your bank and credit card statements and begin to enter the expenses into your core categories. Have a total of what you spent vs the income you received in a given month. This will give you an idea of your cash flow and spending habits. It may shock you, so brace yourself
- Find a medium that works.
Whether it’s an excel spreadsheet, or an app, figure out how to integrate budgeting into your lifestyle. I personally use Mint and Personal Capital to track all my spending. These apps are very convenient for budgeting on the go, and you can link all your bank accounts, investment accounts, and credit cards to them. If you prefer a more traditional way, which most people do, a spreadsheet will be the best option. My friend Uche has an AMAZING budget/financial planner template for just $3.99! With a Dollar, Pounds and Naira version. All you need to do is PayPal her at firstname.lastname@example.org, with your email in the notes. If you want a preview of the planner, go to her IG page here, and check out the “BUDGET” highlight!
- Allocate your funds.
Now that you know how much you spend, and you have found a medium to budget with, allocate your anticipated income for the month to your various categories. If you can afford to save, I would recommend you “pay yourself first” by putting away 20%-30% of your income in a savings account (emergency fund) before you even see it. Then allocate the rest into your core categories for the month. Ideally, you should have up to 3-6 months of expenses in an emergency fund. Here are some great high yield savings accounts to stash your savings away in. For US, Canada & the UK.
- Monitor your cash flow and spending each day.
Trust me, I know it may be hard, or borderline torture to see how much money is going out of your accounts each day, but it is necessary for financial growth. It gets easier as you go, and gives you a sense of security and control. Make sure you are updating your spreadsheets or monitoring your budgeting apps each day.
- Don’t be too hard on yourself.
When we decide to get our finances “in check”, we can be a little hard on ourselves. We may become obsessive and anxious about our finances. We may scold ourselves for “eating out too much” or “spending $6 on coffee” or “splurging at our favorite store”. This is why it is important to save first, allocate funds to bills, then give yourself some “splurge money” to do whatever you please with, guilt-free. Don’t ever feel bad for spending money on something that gives you lasting joy.
- Every month will be different.
There may be unexpected expenses that pop up. Emergency situations may even arise, which is why I recommended saving 20% – 30% of your income each month in an emergency fund earlier. This way, you don’t have to squeeze anything out of your regular income to tend to unforeseen expenses. Create a buffer in your budget to account for “Miscellaneous” spending.
- Ditch the debt.
Have a plan for debt repayment in your budget. Do you have credit card debt, student loans, or any other kind of debt? Make sure you set aside money each month to reduce these debts. Ideally, you should be making more than the minimum payments each month, to reduce your principal balance and accelerate the elimination of these debts entirely.
- Have goals and rewards.
Give yourself little milestones to achieve each month, to encourage healthy spending habits. Incentivize achieving these milestones. You can reward yourself with a nice dinner, or gift yourself with an item or experience you really want. For example, you can set a goal to save $1000 this month. Once you hit this milestone, reward yourself with dinner from your favorite place or a thoughtful gift. Goals and rewards may vary from person to person, but positive reinforcement is helpful in your financial journey. However, don’t let the rewards detract from the financial objective.
These are just starter tips. The results may vary from person to person, because after all, we all have different income brackets and lifestyles. This is just a general guide for anyone who might be struggling with financial planning or budgeting. Check out my previous article about saving money here!